Student Loans Annual Statement

muon · 17 Nov 2008 at 17:00

£16.8k with a year to go. I win

. To be fair I didnt need to take out the maximum loans and a large chunk is currently in a high interest savings account (not in iceland). They will charge me 3.8% next year while the fixed rate I secured gets me 6.25% gross (tax free) because I'm not working.

My degree is well worth the money considering international students are desperately trying to get on my course at a tutiion cost of £13k.

int · 17 Nov 2008 at 17:16

If I get my PhD placement next year, I'll be getting 16-20k tax free so I can start paying off my loans without the added worry of giving a chunk of it to the tax man

Glaucus · 17 Nov 2008 at 17:57

a1ex2001 said:
Paying your student loan off early is stupid, you would be better off putting the money you are thinking of paying back into a high interest savings account as you will be better off.

Not silly at all. put any extra money into a savings account until you have enough to pay it off in full. the extra free income a month is a lot and is well worth paying it off early.

Phoebs · 17 Nov 2008 at 18:21

my statement is huge also. i just looked at it, got depressed and filed it away

dont want to look at it again

gumbald · 17 Nov 2008 at 18:39

They sent them all out together then. £13885 for me, thought it would be more than that.

muon · 17 Nov 2008 at 21:10

AcidHell2 said:
Not silly at all. put any extra money into a savings account until you have enough to pay it off in full. the extra free income a month is a lot and is well worth paying it off early.

What extra free income? If you spend money on paying off your loan you are having a lower income. If you're saying after you have paid it off, then using the money you used to pay off your loan in the first place and the use of high interest accounts you will be better off.

Think of someone who lives 3 years in a world of zero inflation.

In year 1 they start off with 10k of debt with interest rate of 3%.

Each year they earn 25k paying 20% to pay for the loan.

in the first year they pay 5k and they reduce the loan from (10,000 x 1.03) to 5,300. He has 20k to consume that year. He could if he wanted pay off the 5,300 and consume only 14.7k. He then earns 25k the following years.

So he consumes 14.7k , 25k , 25k.

But he could have saved that 5,300 in a 4% (after tax) savings account.

So at the end of year 1 he consumes 14.7k, has debt of 5,300, and savings of 5,300.

In year 2 he again is forced to pay 5k reducing his loan from (5300 x 1.03) to 459. His savings increase to (5300 x 1.04 = 5512). In this year (just to equate to the example where he pays the loan off) he gets 20k from income withdraws 5k of his savings.

So in year 2 he consumes 25k, has debt of 459 and savings of 512.

In year 3 he pays the rest of his debt of (459 x 1.03 = 473). So in year 3 he consumes 25k - 473 + (512 x 1.04) = 25,059.

Therefore, where he doesnt pay off his loan as quickly as possible, his consumption is

14.7k, 25k and 25,059.

Strictly better than before.

This can be extended to someone living for x number of years (doesnt have to be years, could months, weeks or even days, but years makes interest calculations easier). This also uses a 1% difference between loan interest and savings interest, but with ISAs this can be a lot larger.

Basher · 17 Nov 2008 at 21:18

AcidHell2 said:
Not silly at all. put any extra money into a savings account until you have enough to pay it off in full. the extra free income a month is a lot and is well worth paying it off early.

Yes it is silly. You'll be better off financially not paying it back straight off, as the MSE link explains in depth.